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China The Role of Prices
As a result of the economic reform program and the increased
importance of market exchange and profitability, in the 1980s
prices played a central role in determining the production and
distribution of goods in most sectors of the economy. Previously,
in the strict centrally planned system, enterprises had been
assigned output quotas and inputs in physical terms. Now, under the
reform program, the incentive to show a positive profit caused even
state-owned enterprises to choose inputs and products on the basis
of prices whenever possible. State-owned enterprises could not
alter the amounts or prices of goods they were required to produce
by the plan, but they could try to increase their profits by
purchasing inputs as inexpensively as possible, and their off-plan
production decisions were based primarily on price considerations.
Prices were the main economic determinant of production decisions
in agriculture and in private and collectively owned industrial
enterprises despite the fact that regulations, local government
fees or harassment, or arrangements based on personal connections
often prevented enterprises from carrying out those decisions.
Consumer goods were allocated to households by the price
mechanism, except for rationed grain. Families decided what
commodities to buy on the basis of the prices of the goods in
relation to household income.
Data as of July 1987
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